Economic history

The merits of genteel poverty

WHY did the Industrial Revolution begin in the 18th century? Why did it start in Britain, a medium-sized island in north-west Europe? And, once the revolution had occurred, why did the gains accrue so disproportionately to countries in Europe and North America?

These are questions that have kept economists busy for decades. Gregory Clark, of the University of California, Davis, thinks the answers lie in the nature of European societies. “Millennia of living in stable societies, under tight Malthusian pressures that rewarded effort, accumulation and fertility limitation, encouraged the development of cultural forms—in terms of work inputs, time preference and family formation—which facilitated modern economic growth,” he contends.

This is not a fashionable thesis. Indeed, it may well get Mr Clark into trouble, given the implication that other societies are less “evolved”. His argument is that throughout the Middle Ages British society was slowly acquiring characteristics that made it a favourable agent for rapid economic change. The rich tended to have more children who survived than their poorer compatriots and this led to a kind of downward mobility as sons of merchants became small traders, sons of traders became craftsmen and so on. The result was that middle-class attributes such as patience, hard work and education spread through society. In most other countries the rich were less fecund: the Japanese samurai produced little more than one son per father, for example.

In addition, British society also produced the preconditions for a growing economy. Interest rates fell, the hours worked rose and day-to-day acts of violence decreased. Had medieval Britain been assessed by the IMF, it would have achieved top marks: taxes were low, monetary policy was stable, property rights were secure.

None of this made much difference while Britain, like all other societies, found itself caught in the Malthusian trap. This was the grim fact identified by Thomas Malthus, an English demographer, that a country's economic potential was limited by its food supply. The trap meant that higher populations merely brought lower living standards (until 1760, the best time to have been a British labourer was after the Black Death). The trap also meant that global divergences in income were limited. In the Middle Ages, Polish workers were considered idle relative to their British counterparts, but their living standards were roughly the same; Poland was merely more sparsely populated.

Once the trap had been dealt with, by improvements in agricultural productivity and the opening up of American arable land, British society was well placed to exploit the opportunities for economic growth. These came in the 18th century in the form of new technologies in cotton production. The need to earn the income to feed its growing population gave Britain every incentive to become “the workshop of the world”.

Industrialisation also brought about a huge reduction in inequality. Real wages rose rapidly after 1820; life expectancy, just 23 years for Londoners in 1800, also improved. Competition meant that industrialists did not earn monopoly returns from the new technology, nor did the gains all accrue to landowners.

Why were these developments not matched in Asia? Mr Clark argues that Indian and Chinese societies were short of neither technology nor capital: interest rates in the 19th century were lower in India than in America. Asians were simply inefficient in their use of labour. Even though they used the same machinery as the high-wage economies, they employed many more workers per machine, without winning any extra output. Poor working habits seem to have been the cause. Even in 1955, 11% of Indian cotton workers failed to turn up for work the day after payday.

Much of this will be rejected in the developing world, especially as it is widely believed that the British went out of their way to hobble the Indian textile industry. Mr Clark, however, has produced a well written and thought-provoking thesis, refreshingly light on jargon and equations. It could well be the subject of debate for years to come.